Grant Audits

Grant Auditing

Grant auditing has become a fundamental tool to ensure the proper management of public funds. Through a detailed analysis, these audits identify potential cases of misuse of funds and verify compliance with the conditions stipulated by the granting agencies. Ensuring proper use of public funds is a priority for the public entities that provide them. Therefore, one of the requirements is to request that grant recipients provide a report issued by an auditor certifying the correct allocation of the grant received according to its intended purpose.

What does a grant audit involve?

A grant audit evaluates in detail how a public entity uses funds in specific projects. Its objective is to express an opinion on the reasonableness of the expenses recorded and declared as attributable to the activity, compliance with the applicable regulatory framework, and verification that the conditions imposed by the granting body are met and the established objectives are achieved.

According to current regulations, regarding the review of grant accounts, companies benefiting from a public grant must submit a report prepared by an auditor. Article 74 of the Grant Law Regulation establishes that if the beneficiary is required to audit their annual accounts, the review of the grant account will be performed by the same auditor, unless the regulatory bases provide for the appointment of another auditor. When the beneficiary is not required to audit their accounts, the auditor will be appointed by the beneficiary unless the regulatory bases specify that the granting authority makes the appointment.

How is the audit conducted?

The scope and depth of the grant account audit depend on the rules set in the regulatory bases of the grant. Additionally, it must comply with the standards and supervision indicated by the competent authority for financial control of grants.

During the audit, professionals apply various procedures to ensure that funds are allocated according to the initial objectives. This includes reviewing documentation, interviewing responsible parties, analyzing financial statements, and, if necessary, visiting the locations where funded activities were carried out.

In most cases, the audit cost is considered an eligible expense if established in the regulatory bases and up to the limit specified.

What the grant account must include

The grant account must include a financial report with costs allocated to the project. The report should clearly show the correlation between the allocated expenses and the work performed.

The financial report should include, as specified in the regulatory bases, a minimum content with a statement representing the expenses incurred in carrying out the subsidized activity or activities. Expenses must be grouped by nature and, if applicable, include information on the initially budgeted amounts, final incurred amounts, and deviations.

For proper preparation of the audit report, the company or entity must provide the auditor with all documentation necessary for their work, such as third-party invoices, payroll, payment receipts, indirect cost allocations, separate accounting records, etc.

Additionally, documents, books, and records used in the audit must be retained in case verification and controls required by law are needed.

If not all required documentation is provided, the auditor may include a limitation of scope in the report, indicating the reason and cause.

Common grant review procedures

The scope of work depends on the specific procedures established by regulations. In general, common technical procedures include:

• Understanding obligations in grant regulations and verifying the call and resolution.

• Verification of the grant account provided by the company.

• Verification that information in the financial report is supported by a classified list of expenses and investments, identifying the creditor, supporting document, amount, issue date, and payment date.

• Verification that the company has original supporting documents for the justified expenses or investments.

• Verification of personnel costs allocated, including payroll, summaries, social security contributions, hours worked, cost/hour, indirect cost allocations, etc.

• Verification of payment receipts.

• Verification of correct accounting of expenses and payments.

• Ensuring that expenses are eligible and paid within the eligible period.

• Ensuring indirect costs do not exceed the maximum limit.

• Verification of correct classification of expenses and investments according to regulatory bases and nature.

• Ensuring consistency between expenses and the nature of subsidized activities.

• Analysis of possible grant overlaps to detect incompatibilities or double funding.

• Obtaining a representation letter from the company.

• Additional checks to confirm administrative verifications.

The audit department has a specialized team for grant audits. Our auditors have extensive experience auditing all types of grants and public funding, including European, national, regional, and local programs.